Sukuk As A Tool Towards Development: How Kenya Can Use Sukuk As Alternative Source Of Funding Development Projects

Abstract

INTRODUCTION Globally, the growing demand for development, especially infrastructure development, is not proportional to the available funds to finance such development. The Organization of Economic Cooperation and Development (OECD) projects that a global estimated sum of USD 71 Trillion would be required by 2030 for investments in road, rail, telecommunication, electricity and water infrastructure, without taking into account seaports, airports and social infrastructure.1 The World Economic Forum, on the other hand, estimates the present global infrastructure demand presently as USD 4 Trillion in annual expenditure.2 The African Development Bank on the other hand estimates that the financing required to close Africa’s infrastructure deficit amounts to USD 93 billion annually till the year 2020.3 Closer home, the World Bank reports that Kenya’s infrastructure financing deficit is at USD 2.1 Billion annually, and this accordingly poses a serious constraint to growth and overall development.4 The current budgetary allocation for infrastructure projects is inadequate to attain the development goals. The International Budget Partnership5, in its review of Kenya’s 2016/2017 budget, found that the total spending for 2016/17 rose to Ksh 2.05 trillion and out of this, the government collected Ksh 1.50 trillion in revenue leaving a deficit of roughly Ksh 555.4 billion, which is 6 percent smaller than the 2015/16 budgetary deficit.6 Also noteworthy is that the share of the budget allocated to infrastructure was reduced from 27 to 25 percent.7 Despite this reduction, infrastructure still accounted for a largest share of the total development expenditure.